H3C, one of China’s largest server manufacturers, has warned of a potential shortage of NVIDIA’s H20 chip. The H20 chip is one of the most advanced AI processors and the only one legally available in China due to US export restrictions. The company has issued a notice to customers about this potential shortage, which could pose significant challenges to China’s AI ambitions.
Chip Shortage and Its Impact on Chinese Technology Companies
H3C explained in its notice that the supply chain for H20 chips is facing significant uncertainty. It added that current inventory is nearly exhausted. This situation is due to ongoing geopolitical tensions that are significantly impacting global trade and the supply of essential materials. This impact could hinder the ambitions of Chinese companies seeking to expand their investments in AI. The company explained that new shipments of H20 chips will arrive by mid-April 2025, which means Chinese companies may struggle to meet their needs for these chips at this time. Geopolitical Tensions and Increased Demand for AI Chips
Demand for H20 chips has increased significantly in recent months. Major Chinese companies such as Tencent, Alibaba, and ByteDance have significantly increased their orders for these chips, especially after powerful AI models from Chinese company DeepSeek proved their ability to transform numerous industries.
Additional Supply Chain Challenges
Beyond supply shortages, H3C has also faced issues related to changes in raw material policy, shipping disruptions, and production challenges. The company added that supply plans beyond April 20 will also face uncertainty due to these factors. The company explained that it will distribute available H20 chips based on a “profit first” principle, prioritizing customers with long-standing relationships and those who achieve higher profit margins on their orders.
High Prices and Processor Scarcity
In the same context, an industry source who distributes AI servers, including those using H20 processors, confirmed that these processors are currently scarce in the Chinese market. The source, who requested anonymity due to confidentiality, added: “We initially received information that the chips would be available, but when it came time to purchase them, they told us that someone had already sold them at higher prices than expected.”
US Processor Export Restrictions
It is worth noting that the US government has imposed restrictions on the export of NVIDIA’s latest processors to China since 2022. These restrictions aim to prevent China from using these advanced technologies to enhance its military capabilities. The H20 chips are the last NVIDIA processors that the US allows to be sold in the Chinese market under its restrictions.
H2O Sales in 2024
According to analysts, NVIDIA is expected to ship approximately one million units of H20 processors in 2024. This volume would generate revenues exceeding $12 billion, significantly contributing to NVIDIA’s huge profits. However, this significant growth in demand creates additional challenges in light of restrictions on chip exports to China.
Homegrown Alternatives to China: Huawei and Cambricon
Faced with the shortage of H20 chips, some Chinese companies, such as Huawei and Cambricon, are seeking to develop homegrown alternatives. With government support, these alternatives could be the ideal solution to meet the growing AI needs of the Chinese market. However, these alternatives may not be as advanced as NVIDIA chips, which could impact the performance of many companies relying on advanced AI technologies.
China’s Role in Developing AI Technologies
China is seeking to make significant strides in the field of artificial intelligence, especially in light of the growing domestic and international demand for advanced AI technologies. In recent years, China has launched several initiatives to support the development of these technologies, including investment in data centers and the development of advanced computing capabilities. However, the shortage of H20 chips may hinder these ambitions, making it difficult for Chinese companies to achieve their goals of expanding their capabilities in this field.
The Impact of US Restrictions on Innovation in China
It is believed that US restrictions on the export of advanced technologies to China may significantly impact innovation in the AI sector in China. Chinese companies are currently trying to overcome these restrictions by developing alternative, domestic technologies. However, this is not without challenges, as China needs a long time to reach the same technical level as American companies like NVIDIA.
Future Prospects for the Chip Market
In the near future, demand for H20 chips will likely continue to rise, especially as global trends drive increased use of AI across various industries. However, this may be accompanied by further supply chain challenges due to ongoing geopolitical pressures. Chinese companies are likely to seek alternative sources of supply, including investing more in developing domestic chips capable of competing with NVIDIA’s products.
In conclusion, the current situation in the global chip industry demonstrates the extent to which geopolitical tensions and trade restrictions are impacting technological innovation. A potential shortage of NVIDIA’s H20 chips could pose a significant challenge to China’s technology sector, forcing Chinese companies to reevaluate their strategies. At the same time, governments and companies around the world must adapt to these complex dynamics to ensure continued innovation and progress in the field of artificial intelligence.
